All just fish in a barrel

LAST week, you wanted to buy an aeroplane ticket. You looked at the price on the airline’s website, searched the Internet for a better deal, then returned to the airline’s website. You found the price had increased. You booked quickly, before it went up again.

You were conned. When you first visited the airline’s website, it made a note of your computer’s IP address, or placed a cookie on your Internet browser, allowing it to track your movements on the Internet, and identify you as a likely customer with a desire to travel. When you went back to the airline site, it recognised you and merely raised the price to convince you to conclude the transaction. If the flight had been almost empty, the price would have gone down.

Regular visitors to Amazon websites feel as if they are children in a toy store that knows exactly what they like. The mechanism “collaborative filtering” is not new. First developed at Massachusetts Institute of Technology (MIT) in 1995, it uses algorithms to group people with a similar browsing history and consumer profile. When this data is logged and analysed, the retailer can calculate your preferences. Then it suggests items that your “clones” have already bought.

Amazon’s average annual sales in the United States rose from $160 per customer to over $240 after it adopted the system. The system is so efficient that the website will ask if you are buying something for yourself or as a gift, to make sure the purchase does not corrupt your consumer profile. This is the world of personalised marketing, which gets you to part with your cash by knowing what you want.

In the eighties, marketing experts used consumer surveys to identify markets. It was like fishing with a drift net after sonar had identified a shoal of the right species. But retailers are no longer interested in a market segment, they’re interested in you: shooting fish in a barrel.

They benefit from your regular and often unwitting co-operation. More than a billion Facebook users freely hand over information that a few years ago no reasonable person would have given a salesperson: sociodemographic profile (age, gender, education, city of residence), musical tastes, friends, photos and aspirations. There is also your browsing history and your online behaviour. Everything you look at, read, listen to, download or buy, is recorded.

Almost all websites use cookies that recognise you the next time you visit. Most applications that are free to download also install more intrusive “spyware” that tracks your online activities and relays the information to marketing experts, who use it to target their offers more accurately.

The last time you downloaded an application to your computer or smartphone, did you read the terms and conditions? If so, you are one of the three percent who did. If not, you agreed to be spied on and for your information to be passed to other companies. That is what you agree to every time you click “accept” to download an application. It may be morally questionable, but it is legal.

Free applications and services such as Google Maps, Hotmail, Facebook and Instagram are all Trojan horses providing retailers with the information to adapt their offers. This is done by search-engine optimisation, which aims to show the right advert to the right person. It is boosting Google’s profits. In 2012, the multinational’s free services brought in more than $32 billion in advertising revenue.

Such targeting does carry risks for those selling advertising space, because return on investment is measured more rigidly. Ten years ago, the price of an advert was based on the number of customers it would reach, whether it would interest them or not. Today, more than 20% of advertising-industry revenue is based on click-through rates: the advertiser doesn’t pay unless the Internet user clicks on the advert.

Another new approach is affiliate marketing, which involves an advertiser paying, in full or in part, according to how many sales an advert generates. So if you click on an advert and buy the product, the advertiser pays a commission to the website, search engine or social network that made contact with you. This approach, and pay-per-click, are replacing traditional adverts paid for on the basis of the number of people who see them. But an approach that focuses on an advert’s immediate effect has been resisted by professionals who do not want to see their role reduced to making instant sales.

If you bought the product two weeks later from a shop, is any commission due? The answer is yes, because it is getting easier to follow a consumer profile in the virtual and real worlds, through such tools as Google Wallet. This simple application takes personalised marketing to a new level. You download it to your phone and key in your personal information and banking details. When you get to the till, the shop picks up your phone signal, and once you have authorised the transaction, it is complete. The retailer doesn’t have access to your financial details — they are kept by Google, which debits your account to pay the retailer, and so learns more about your buying habits. Google may not yet be selling adverts on this basis, but it understands the potential of its technology.

— Agence Global.

• Jacques Nantel is a professor of marketing at HEC Montréal.

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